Goldman: The Rising Wedge

In yesterday's Comment Section, Kevin said...

"...that was a fake breakout right? gap up with relatively heavy selling throughout the day and a close within the wedge and below yesterday's close. what would you consider the signs of the validity of the false breakout. does the overhead resistance of the wedge still matter? is the wedge's overhead resistance stronger now? thanks"

You're welcome, Kevin. Before I address those questions, we're going to go play "The Game Simulator" Fun, huh?!

Now, NO CHEATING by anyone going to the next chart before answering the first question first. Cheaters will remain after class and clap erasers until they choke on chalk dust. LOL.

Stock XYZ in the chart above failed to break out of The Channel (in black) in mid-March, however, it did recently break out. In the past few days since the breakout, XYZ has put in a Bearish Doji Star, then a Bearish Hangman, then another Bearish Doji Star. XYZ will close in 30 seconds on the last candle that you see, at 108.08.

Game Simulator Question: You may have 1,000 FREE shares to go long or short from this close of 108.08. You must hold the trade until tomorrow's close, when the trade will be settled. Make your selection:

A) I want to go long 1,000 shares of XYZ
B) I want to go short 1,000 shares of XYZ
C) I want to stay on the sidelines and not play, and NOT be any fun at all

NO CHEATING. Make your choice before looking at the next chart!



Congratulations if you chose B) I want to got short 1,000 shares of XYZ. It closed the next session at 100.46. Those who chose to short XYZ made $7,620. Those who chose to go long XYZ lost $7,620.

Next question: Based on this candle's Gap Down, back inside The Channel, is that confirmation that The Channel Breakout was a failure, i.e., a Breakout/Fakeout? You win $1,000 for a correct answer; you lose $1,000 for an incorrect answer:

A) Yes, it is confirmation of a Fakeout/Breakout
B) No, it is not confirmation of a Fakeout/Breakout
C) I still don't want to play because your game is stoopid, and yes, I AM fun!


You probably all guessed from the outset the "XYZ" really was Goldman since we've all poured over the chart so much. LOL. I thought, though, that "The Game Simulator" was a rather dramatic illustration of what certainly "looked like" a Fakeout/Breakout of The Channel, given the Gap Down, and given the nearly $8.00 drop in Goldman in that session, putting it back well inside the top of The Channel, but as we now know, Goldman popped right back out of there, eventually used the top of The Channel as support at the bottom of the Falling Wedge formation (pattern in blue), then took off to the upside.

If that "Game Simulator" breakdown, back inside The Channel, wasn't confirmation of a failure, and it wasn't...

...how sure can we be that this rather minor move back inside the Rising Wedge is confirmation of a failure? Answer: Obviously, we can't be certain that is.

At this point, it "could be" a failure. It's a "piece of evidence," along with the successively declining volume on each move to the top of the Wedge.

Regarding confirmation of a failure, Chart School, at StockCharts.com, says:

"Support Break: Bearish confirmation of the pattern does not come until the support line is broken in a convincing fashion. It is sometimes prudent to wait for a break of the previous reaction low. Once support is broken, there can sometimes be a reaction rally to test the newfound resistance level.

Volume: Ideally, volume will decline as prices rise and the wedge evolves. An expansion of volume on the support line break can taken as bearish confirmation"

By "support line," they are referring to the lower trendline of the Rising Wedge. We've got the declining volume on rising prices, but not the final confirmation of a break of the bottom of the pattern. Personally, I never view anything as FINAL confirmation until we've closed out a trade and have a bunch of money jangling around in our jeanies ;)

Regarding how important the top of this Wedge is, we never got confirmation of its signicance by getting a "third hit" to it, then a failure. Rather, Goldman "cozied up to it" and broke out slightly above it on Thursday, but then failed to hold the breakout at Friday's close. Something that would be an additional "piece of evidence" would be if Goldman rallies up to the top of the Rising Wedge on Monday, which will be at 150.222, fails there, or near there, then reverses down.

So-o, as far as I am concerned, "The jury still is out." While Goldman is making higher highs on lower volume, and while Friday's candle was a close back inside the Wedge, it IS making "higher highs," and there is no nearby resistance going back to September, 2008.

We also don't know how valid this Rising Wedge is. It "looks" right, but it "could morph" into a Channel, or it "could be" something like...


... this Rising Wedge. I don't like it as well as the one we've been looking at because the one that we've been looking at has more "flattish" tops, consistent with a Rising Wedge. But, Ms. Market doesn't move based on what Melf likes, or doesn't like. LOL.

Bottom line: It isn't about "being right." It's about "Do you want to play it?" If so, "What is your game plan?" Risk:reward. Money management. Same 'ol...same 'ol.

I played it both long and short last week and made a little. Right now, I'm not playing, but I still think that I'm FUN ;)